7.1 This chapter contains illustrative lists of internal controls which an internal auditor should refer while reviewing a particular process;
however Internal Auditors should not limit themselves to these lists only.
Cane Survey/Pre-procurement Process
7.2 Internal auditor should ensure that the following controls are operating effectively in cane survey/pre-procurement process:
• Whether a detailed listing has been prepared for all the villages to be surveyed.
• Is all relevant information being captured in the survey?
• Are all changes in the survey register duly authorised?
• What are the controls to deal with data entry errors? A sample checking should be done for effectiveness of these controls.
• Whether audit log is being maintained for all the changes in data fed into IT System.
• Are all the timelines specified by the government being adhered to?
• Whether proper verification process exists, before adding/deleting any grower code to database.
• Whether relevant documents are being obtained from grower before addition?
• Whether any check is being done to identify duplicate grower codes in the data?
• Has the bonding been done as per the directions from the government?
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Sugarcane Procurement Process
7.3 Internal Auditor needs to ensure that the following controls are operating effectively in cane procurement process:
• Have the sugarcane been purchased from growers not listed in growers list?
• Have some large payments been made to certain growers or family members of same growers?
• Do multiple growers have same bank account details?
• Check for records of calibration of weighing bridges.
• Check for serial numbering of purchase receipt at the out-centers.
• Check for the cancellation process of any wrong receipt, or if any receipt has been left blank.
• Check whether the tickets on which supply has been made have been issued by mill or society.
• Check if cane has been purchased in excess quantity than that mentioned on supply ticket, beyond tolerable limit.
• Check for the process of verification of cane variety on receipt of the same at mill gate or out-center.
• Reconcile purchase records of the out-center with receipt at the mill gate. Check if proper root causing has been done for any major variations.
• Check for time lag between purchases of cane at out-centers and receipts at mill-gate to see it is not too high.
• Check if root causing has been done for failure rate in supply tickets if it is beyond certain threshold.
• Reconcile payments made with supplies.
• Check if payments had been made to growers without adjusting for loans.
• Check for any large payments made in cash and analyse the reasons for the same.
• Verify transporter contracts and payments.
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Manufacturing Process
7.4 Various controls that should be checked by an internal auditor are as follows:
• Actual to budgeted comparison for various efficient norms set by the management. Some key parameters to look at are:
o Power/steam consumption per quintal of cane crushed.
o Recovery ratio.
o Sugar losses in bagasse and molasses.
o Fuel consumption per unit of electricity generated (Power Plant).
o Steam generated per quintal of fuel consumed (Power Plant).
o Percentage of make-up water (Power Plant).
o Steam/power consumption in Distillery.
• Statutory compliances with respect to operation of machineries like, boiler, vacuum pans, etc. and other clearances from the government.
• Environment, Health and Safety standards are adhered to in day to day functioning, running of ETP plant, disposal of boiler ash, flue gas and spent wash.
• Log books are being filled properly and are also capturing deviations.
• Recording of overtime by the workers.
• Recording of finished goods is as per excise rules.
• Control over gunny bags movement.
• Segregation of duties between production and quality.
• Root cause analysis for any break downs.
• Trend analysis with previous year results.
• Planning with regards to off-season and season maintenance schedule.
• Cost/budget of maintenance (year to year comparison).
• Whether annual maintenance contracts have been entered for key machineries.
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• In case of power plant and distillery are separate entities, whether bagasse, sugar and molasses have been transferred at arm’s length principle?
• Whether overheads have been allocated properly while accounting for cost of manufacturing?
Sales and Marketing Process – Sugar
7.5 Internal auditors needs to ensure that following controls are operating effectively in sales and marketing process:
• Check for budgeting the expenses for sales.
• Check if all the expenses are duly processed, accounted and approved as per DOA.
• Check if all expenses including the ones which are in excess of budget, are duly approved as per DOA.
• Check for sample of transactions that proper DOA has been followed in the sales contract.
• Check for the debit on agents for bad debts.
• Check for management’s approval process for processing non-standard terms and conditions/orders.
• Check that data is processed with supporting documents.
• Review of process of intimating orders details to units on time.
• Review of process application controls related to order processing. Review list of order processed on a sample basis with the approval document for authorisation and compare the same with credit limit terms of customers.
• Check process of transfer of order entry data details for shipping/material dispatching department and to the invoicing department. Compare all the information for completeness and correctness and do 3-way match.
• Check appropriate approvals for all order modifications.
• Review the segregation of duties to avoid chances of overriding activities/controls.
• Review the process of dispatch orders and the process of controlling by issuing dispatch order numbers, etc.
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• Review the process of material dispatched and the scheduled time to process invoice for the same.
• Review the cash/bank receipts transactions for recording in appropriate period. Check for delay in recording the transaction.
• Review the process of recording cash/bank collection in books and the control of review to avoid any recording or processing error.
• Ensure that the collections are accounted for in the correct customer account.
• Review the process of cheque collection and timely processing the same for collection.
• Review the process of discount to customers. Review on a sample basis the discount given along with details of approval and correctness for the same.
• Ensure that the discounts are accounted in the correct customer accounts.
• Check that the credit notes are issued for appropriate reasons.
• Check the process of reviewing the accounts receivable details.
Review aging of accounts receivable and the action taken for collection of the same.
• Review the process of reconciling Subsidiary Ledger- General Ledger (SL-GL) reconciliation on a periodic basis. Compare the same with standard policy. Check on a sample basis reconciliation for the same.
• Review bank accounts reconciliations. Ask for bank account as per books of accounts and the bank statement. Verify the bank balances from banks and check for pending unresolved/unclear transactions.
• Review the standard policy of provisioning of doubtful debts and the actual provision made. Compare the same with standard policy. Also check the authorisation/approval for the same.
• Review the standard policy of account's write- off. Compare the actual write off details with the standard policy and also check the authorisation/approval for the same as per DOA.
• Check for existence of process for resolution of customer’s complaints.
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Sales and Marketing Process – Distillery Products
7.6 In case of distillery products, following controls should also be checked by internal auditors to ensure proper functioning:
• Check for sample of transactions that proper DOA has been followed in sales contract.
• Check for the debit on agents for bad debts.
• Check management’s approval process for processing non-standard terms and conditions/orders.
• Check that data is processed with supporting documents.
• Review of process of intimating orders details to units on time.
• Review of process application controls related to order processing. Review list of order processed on a sample basis with the approval document for authorisation and compare the same with credit limit terms of customers.
• Check process of transfer of order entry data details for shipping/material dispatching department and to the invoicing department. Compare all the information for completeness and correctness and do 3-way match.
• Check appropriate approvals for all order modifications.
• Review the process of dispatch orders and the process of controlling by issuing dispatch order numbers, etc.
• Review the process of material dispatched and the scheduled time to process invoice for the same.
• Review the cash/bank receipts transactions for recording in appropriate period. Check for delay in recording the transaction.
• Review the process of recording cash/bank collection in books and the control of review to avoid any recording or processing error.
• Ensure that the collections are accounted for in the correct customer account.